commodities outlook: Expect catch up rally in silver in second half of 2020: Adrian Ash

There are other metals which relative to gold now look undervalued and can be an attractive opportunity, says the director of research at BullionVault.

Is it the right time to move away from equities and park some funds into commodities, especially the likes of gold and silver? They are the ones that seem to be doing much better due to the uncertainties in the market.

As a bullion dealer, I am always going to say it is a good time to move some money into gold or silver. But if you look at the equity markets right now, it is really interesting that we have seen such strong US stock markets despite this catastrophic global pandemic and I think that is really due to the amount of money being poured into the financial markets by central banks. There are hopes of a V-shaped recovery and I think the size of government deficit spending is huge, supported by massive central bank intervention worldwide.

I think that is really what is helping the stock market continue to rise and rally. That is what is also driving a lot of money into the precious metals. Gold in particular has really proven its value as a safe haven in the first half of 2020. It has performed phenomenally well. Yes, it had a wobble in March along with everything else but gold is 20% higher year on year in most currencies and at all-time record highs in the rupee and now in the Chinese Yuan; also against the Euro, the Pound, the Japanese Yen and the dollar price, which is still not making all time highs at $1,800 per ounce.

Silver is fascinating for the second half of 2020. Silver has performed nowhere near as well as gold. It is pretty much flat for 2020 so far and that is because silver is primarily an industrial metal today. Its monetary use was abandoned much sooner than gold in the 20th century and it does not have central bank support but gold does. Central banks do not buy silver as a monetary reserve and its prime use now is industrial use. So I think the idea of V-shaped recovery particularly with a lot of inflationary pressure from all of this money creation and from all of this new debt has put a lot of attention towards silver now. And particularly because it has not performed as well as gold, a lot of people are now looking at silver and thinking maybe it can catch up very quickly.

You talked about the relationship between inflation and precious metals back home in India. It is no secret that Indians love their gold. When you speak to your clients, what is the advice that you are giving out? Do you think we are going to see prices continue to surge?

I think it is very difficult at the moment to see what stops gold and that makes me a little nervous of what is clearly a strong bull market. There is a huge consensus now amongst bank analysts, bullion analysts and commodity analysts that gold prices have really had so many tailwinds; there is the economic fears from the Covid catastrophe, there are geopolitical concerns, we have the US elections in November, we have the UK leaving the European Union probably on a no deal exit at the end of this year. We have the situation in Hong Kong with China.

There is a lot of tension and a lot of anxiety and sadly gold does look bad sometimes and the fair consensus is really for higher prices in gold. There is a fear of missing out (FOMO) which we could see really catch fire for speculative traders in gold. We have also seen a lot of private bank money come into gold so far in 2020. I think there is a lot more that could come in. I have been hearing some private banks recommending 10% allocation for their clients to physical bullion and I think if that trend continues and the bad news continues, there is a lot of scope for gold to go higher.

Platinum is interesting of course. Platinum has primarily one use at the moment. Its main use is as an auto catalyst to reduce harmful emissions from diesel engines and the diesel story has not been a good one for five years since the VW scandal on emissions cheating. But platinum similar to silver has underperformed and has a potential to gain a lot of new interest. If the precious metals led by gold continue to gather this new interest, we could see most speculative investors looking beyond gold and saying there are other metals in this space which relative to gold now look undervalued and I think that may be an attractive opportunity.